Shares in Lloyds Banking Group were down on the FTSE 100 in morning trading after the part-nationalised bank swung into a loss in the first quarter ended 31 March 2011.
The bank reported a pre-tax loss of £3.4 billion, after making a pre-tax profit of £721 million in the same period last year. The sharp swing was attributed to a £3.2 billion provision for Payment Protection Insurance.
Impairment charges were also up from £2.4 billion a year ago to £2.6 billion, although they were down from the £3.8 billion reported in the fourth quarter of 2010. The rise was attributed mainly to higher than expected charges in Ireland.
Underlying income in the period was also down from just under £6.0 billion a year ago to £5.2 billion.
Richard Hunter, Head of UK Equities at Hargreaves Lansdown Stockbrokers, commented, "Whilst Lloyds believe the PPI provision will put an end to the issue, the pain is currently being felt both in terms of the quarterly performance and the current share price.
"There are other elements of concern within the statement. Lloyds has not traditionally been able to benefit from the international diversification of some of its rivals and where it has, such as in Ireland, it has been forced to make further writedowns. In addition, subdued lending demand has led to a decrease in net interest margin, which is of some concern given the current benign interest rate environment. On the plus side, deposit growth by customers is progressive, whilst the cost synergies resulting from the HBOS integration programme appear comfortably on track.
"On balance, the market is favourably disposed towards the shares, even though this has not fed through as yet to performance - Lloyds had given up 5% prior to these numbers over the last year, as compared to a 12% gain for the wider FTSE100. Whilst the appeal of the shares is limited for income seeking investors, the potential growth story is one on which investors are focused, such that the consensus comes in as a buy."
By 09:10 shares in Lloyds Banking Group were down 5.93 per cent on the FTSE 100 to 54.58 pence per share.